Proxy Voting

New Video Podcast!

I am happy to announce that on May 2, 2018, my new video podcast, The EC Minute, launched.  The first three episodes are all live now. New episodes will be posted weekly. You can see the video podcast episodes at:

The EC Minute

The first three episodes take a look at Say-on-Pay, with a focus on S&P 500 companies.

 

If you have an idea or suggestion for a topic for The EC Minute, just let me know by using my contact form:

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Is it Better to Propose a New Omnibus Plan or to Amend an Existing Omnibus Plan?

I am often asked whether it is better to ask shareholders to approve an amendment of an existing omnibus plan or a completely new omnibus plan. Generally, there is not too much difference since you can make the amendments ensure that the existing omnibus plan complies with current corporate governance best practices.  But, in point of fact, there is a slight difference when I look at the voting for proposals to amend an existing plan versus to approve a new plan.

Mind you, the difference is not all that much.  But for companies that are looking to do everything possible to ensure a favorable vote outcome, then serious thought should be given to adopting a new omnibus plan since such proposals receive higher levels of voting support.  That said, the median level of vote support for proposals to amend an existing omnibus plan are slightly higher than the median support for proposals to approve a new omnibus plan.  But this is offset by the fact that proposals to approve new omnibus plans have more votes coming in at or above the 90% level.

The charts below look at the vote support at median and average and by support level for both of these proposals using data from the ISS Voting Analytics database for S&P 500 companies with such proposals in 2015, 2016 and in 2017 so far.

Source: ISS Voting Analytics database

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Proxy Advisors’ Influence Waning?

If you read the Wall Street Journal article, For Proxy Advisers, Influence Wanes (May 22, 2013), you might think that both Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) are on the ropes. There’s even a quote from Glass Lewis’ VP of proxy research, David Eaton, that seems to buttress that conclusion:

“Our power is probably shrinking a little bit.”

The article discusses how some of the larger mutual funds and money managers, like BlackRock and Vanguard Group Inc., have teams that handle more of the leg work that used to be in the proxy advisors’ wheelhouse. But these large institutional shareholders still subscribe to the ISS and/or Glass Lewis proxy reports. In many cases the ISS and Glass Lewis proxy report are viewed as background research on the company, which then may be supplemented by the institutional shareholders’ staff (which are generally too small for them to handle all the research themselves in a cost efficient manner).

The article cites a 2002 study that found that a negative ISS vote recommendation on management proposals influenced from 13.6% to 20.6% of the vote. Additionally, with the passage of the Dodd-Frank Act with its say-on-pay requirements, the influence of proxy advisors has grown. According to a 2012 study by the Conference Board, about 70% of 110 large and midsize companies indicated that their pay practices were influenced by proxy advisory firm policies.

Glass Lewis and ISS indicated that they are recommending against fewer say-on-pay votes this year and fewer have actually failed.  According to Broc Romanek’s blog today on CompensationStandards.com, there have been only 23 say on pay votes that failed so far in the 2013 proxy season.

The conclusion I reach?  A bit different than the article–proxy advisors’ influence is still going strong.

Why? Because at this point many large and midsize companies are either  incorporating the proxy advisors’ policies regarding pay practices into their pay designs up-front or at least considering them during the design phase.  Therefore, more companies are either complying with the proxy advisors’ policies or are aware of anything done outside the lines of those policies and can then do a better job of explaining the rationale for such compensation actions to their shareholders.

So while it might appear from a pure vote perspective that the influence of the proxy advisory firms is waning (which I question a bit given what I’ve seen in the context of equity plan proposals for some time, see the white paper Reid Pearson of Alliance Advisors and I published earlier this year on the topic which shows that failed equity plan proposals have stayed at about the same level over the past five years, Equity Plan Proposal Failures: 2007-2012), I believe their influence on executive compensation at public companies is actually growing.

WSJ article: http://online.wsj.com/article/SB10001424127887323336104578499554143793198.html#printMode

Equity Plan Propsal Failures: 2007-2012: https://www.exqty.com/Media/Publications/EP%20Proposal%20Failures%202007-2012_20130107.pdf

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SEC Charges ISS in Breach of Clients’ Confidential Proxy Voting Information

On May 23, 2013, the SEC charged ISS in the breach of clients’ confidential proxy voting information as part of its investigation that found an ISS employee provided a proxy solicitor with material, nonpublic information revealing how more than 100 ISS institutional shareholder advisory clients were voting their proxy ballots. ISS agreed to settle the SEC charges by paying a $300,000 fine.  Here is the link to the SEC Press Release announcing this action:

http://www.sec.gov/news/press/2013/2013-92.htm

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